Yzerfontein Chronicles

Tuesday, November 15, 2011

This shows just how precarious the situation is ....From the webLenders' funding fears see LIBOR rocket to 1%Mortgage StrategyThree-month LIBOR last week rose to 1% for the first time since July 2009 as lenders' funding and liquidity fears deepened on the back of the eurozone crisis. LIBOR has risen from 0.83% since August, steadily increasing the gap between it and the 0.5% base rate, which in normal trading ...Recommended by Google+

Saturday, November 12, 2011

Once upon a time the US would have provided this finance..Brazil-China: too close for comfort?It is hard to say no to a trillionaire. That is what Brazil and its oil industry partners are finding as China continually steps up to the plate to provide much-needed capital for the development of g...

The head of China's biggest ratings agency, Dagong Global Credit Rating, is warning that it may downgrade the US's sovereign debt rating again because of Washington's failure to tackle the federal budget deficit. The remarks by Dagong's chairman, Guan Jianzhong, to be broadcast in an interview with al-Jazeera on Saturday morning, come at the end of another week of deep turmoil for the world economy. Dagong, which has maintained a pessimistic outlook on US fiscal policy, has been leading the charge to downgrade US debt over the last 12 months, lowering the US rating from AA to A+ a year ago. http://m.guardian.co.uk/business/2011/nov/12/chins-threatens-us-with-new-debt...

Monday, October 3, 2011

The battle between money and the majority is the story of American politics and has been the central theme of the evolution of American democracy. It starts with the historic deal providing for representation of property or land in the U.S. Senate and representation of people in the House of Representatives. It continues through Dred Scott, slavery, the Suffragettes, the Voting Rights Act, and recent Supreme Court decisions equating the right to spend money with political speech.

The extreme concentration of wealth in the United States is not an accident, but a reflection of our political structure and a strong strain of American ideology and values that idealizes unregulated free enterprise. When the majority of Americans feel they have the chance to better themselves financially and that their children will someday live better than they do, they support the ideal of unregulated capitalism. When that hope disappears, the majority moves in the other direction, and we see politics like the New Deal and what I think will soon resume here in America.

The role of money in politics is not always obvious and is often quite subtle. Political scientists sometimes call this non-decision making the ability to keep issues off of the political agenda. For example, we see a concerted effort to delegitimize regulation. Politicos with their hands out for corporate donations keep talking about "job killing regulations." They are so effective that even our once "hopeful" President goes along and kills air pollution regulations that he knows create rather than destroy jobs. The impact of money in this case is that it sets the agenda and defines the issue of regulation in ways that benefit the short-term interest of a few wealthy interests. According to this definition, regulation is anti-freedom. You could say the same thing about traffic lights, but most of us are happy to comply with them.

Americans are being told they get the same choice that is offered to impoverished Chinese workers. You get a job, but the river turns orange, the air is toxic, and your family may get sick. But maybe one of your children will thrive and go to college. We in America already lived through that. Our rivers caught fire. The cars in Pittsburgh were once coated in orange dust every morning and taxpayers have spent over a trillion dollars in health care and toxic waste clean-up costs in the aftermath of America's toxic mess. The factories moved out anyway- not because of "job killing regulations" but because of cheaper labor and the opportunity to build newer, more competitive plants overseas.

While the deck is stacked against the majority, the rules still allow everyone to have a voice. Sometimes that voice acts in ways that money doesn't understand and can't control. Both rich and ordinary folks have made lots of money off of social media, the internet and cell phones, but it also turns out those technologies make it easier and far cheaper to organize political demonstrations. When my friends and I protested against the Vietnam War forty years ago, we lugged boxes of printed filers on the subway back to Brooklyn from print shops on the west side of Manhattan. Today, protestors just set up a Facebook page and email their "friends." Barack Obama raised hundreds of millions of dollars in small campaign donations through a viral internet campaign that required little purchase of expensive advertising time.

Today we may be seeing the start of a new mass political movement in protests in New York and Boston. While the message is not going out without distortion by the corporate funded mass media, the protestors on Wall Street and on the Brooklyn Bridge are getting their message out about the extreme concentration of wealth and the decline of opportunity. The smarter elected officials like New York City Mayor Michael Bloomberg recognize the danger of a nation without economic opportunity for its young people. Last month on his radio show he observed that:

"You have a lot of kids graduating college who can't find jobs. That's what happened in Cairo. That's what happened in Madrid. You don't want those kinds of riots here."

When faced with demonstrations here in New York last weekend, Mayor Bloomberg took the interesting approach of arguing that the protestors were attacking the wrong target, trying to pretend that they were attacking the typical Wall Street office worker. That is of course nonsense. The protests are acts of symbolic political speech. They are the low-cost way of getting the message of economic distress and injustice on the political agenda. Modern communications technology makes them difficult to stop. But it is also difficult for the protestors to control how their message is disseminated to the American public through the mass media.

The voices promoting unregulated capitalism dominate the airwaves as they argue for the end of the social safety net begun during FDR's time. While conservatives advocate for the elimination of government programs and regulation, other voices are starting to be heard as well. Unlike the Tea Party, these other voices do not have the advantage of being amplified by the corporate funded mass media and elected officials. But they have the advantage of grass roots legitimacy.

It is actually the message of FDR that the wealthy in this nation ought to be remembering. Roosevelt was considered a "traitor to his class" for proposing the New Deal. However, he understood that unregulated free enterprise without a safety net for the less fortunate could not survive. Obviously, the New Deal did not kill America's free enterprise system, it saved it. The advantages of free enterprise were obvious to Roosevelt and they are obvious today. The technology that today's protestors rely on are products of a global economic system that combines public resources with private entrepreneurship. The food we all eat comes from the same source. We need the productivity and creativity of private enterprise and the profit motive. But we also need the long-term perspective, protection, and safety that typically comes from the public sector. We need a well-balanced, well-managed mixed economy. We need to avoid both unregulated corporations and unresponsive, rule-laden governments.

The American public is used to economic growth and opportunity. The global challenges of emerging economies and sustainable development require new thinking if America is to thrive. I think President Obama's broad support in 2008 came from people who sensed the need for such a new approach and hoped that he might be the transformative figure that FDR was in the 1930s. The roots of the Tea Party and of the protests in Lower Manhattan can be found in our collective disappointment that such a transformation was never even tried. Someone should tell the President that it's not too late to start.

Thursday, July 28, 2011

Since the return of convertibility among the currencies of most major industrial countries at the beginning of 1959, a crisis affecting at least one major currency has threatened each year; the U.S. balance of payments has been in continuous large deficit; and the stability of the convertible gold-dollar and sterling system has been increasingly questioned. With the transition to convertibility proving to be so turbulent, doubts have arisen over the adequacy of liquidity arrangements for the future and calls for a great reform of the international monetary system have quite understandably been intensified.

Sunday, July 3, 2011

Since QE2 ended today (and they are still proceeding with zero Fed Funds Rate and reinvestment of MBS and Agency Bond principal payments into Treasuries), the wisdom is the there will be NO QE3.

Yes, probably for July. But I predict that QE3 will be coming shortly. Why? Who wants to buy our debt when The Fed (more specifically, The Fed on New York) stops buying it?

Greece will ultimately default, despite votes for austerity. It’s just a waiting game. Like the James Bond movie, “Die Another Day,” Greece’s Parliament, the ECB, the IMF and others are simply stalling on Greece’s economic death. Along with other peripheral members of the European Union. The collapse of Europe will send money our way — as long as we as the reserve currency for the world.

But China wants to be the Global Reserve Currency, or at least another reserve currency. Why, because China is facing a hard landing because loan losses are huge and growing. Those phantom cities are expensive and don’t generate a heap of rental income to cover debt service. So, China is against a hard wall in terms of THEIR debt issuance. Again, the world will come to us since there isn’t a lot of love for China’s reckless spending policies.

I am guessing that we won’t see a surge in non-Fed Treasuries purchases. So either Treasury will have to offer HIGHER interest rates on their bonds (might be explain Geithner’s hints at leaving as Treasury Secretary), or the Fed will step in and do QE3. We will be watching closely over the summer.

So, either Treasury rates will rise or The Fed will set sail on QE3. Take your pick.

Ex-President Bill Clinton, the architect of the massive surge in mortgage financing through Fannie Mae and Freddie Mac (which ultimately blew up) is now offering his opinions on how to clean up the mess that he helped create. Austerity? Tighten your belts? Move to less expensive rental property? Nope. He is suggesting that Bank of America (and other banks) write down principal on mortgage loans.

Of course, Clinton is not alone. A number of advocates exist for massive principal write downs (including Glenn Hubbard and Chris Mayer of Columbia University and Laurie Goodman of Amherst Securities). They have mixed motivations (including saving second liens for hedge funds), but the question I always have is the same one: WHO pays for the principal write downs?

Answer: The American taxpayer. That is why Ed DeMarco of FHFA (Fannie Mae and Freddie Mac’s Regulator) is against principal reductions. It is VERY expensive with no clear evidence that it would work. And it would create a “Fool’s Gold” Rush of borrower’s threatening to default on their mortgage. Throw in the massive borrower fraud problem and you have a fiasco on your hands.

Then again, President Clinton didn’t foresee the fiasco that he pushed into motion with Fannie, Freddie and the Affordable Housing Mandates. So, why would he correctly foresee the fiasco of pushing Bank of America or Fannie Mae and Freddie Mac into making principal reductions.

Imagine the amount of Tier 1 capital that banks would have to raise to meet the demands for principal reductions? Hint: look at the difficulty Treasury is having issuing debt. Suppose that a run on principal write downs leads to systemic bank failure because the banks can’t handle the requests?

President Clinton, stick to the Clinton Foundation. If the Foundation wants to fund principal reductions, that would be fantastic. Otherwise, stick to whatever else you do. Your housing policies were ultimately devastating.

Saturday, July 2, 2011

The chummy pow wow between Chinese Prime Minister Wen Jiabao and German Chancellor Angela Merkel in Germany this week seemed like all peas and gravy. Fourteen economic deals? Great. Twenty-two cooperation agreements? Even better. Any business is good business in a fragile global economy, right? Not so much. Growing ties between Beijing and Berlin don't all bode well for the U.S., not to mention greater Europe.

For their part, Europeans fear China is taking over their continent by buying its way in. China's recent purchases of Spanish and Greek bonds, for instance, have made it the flailing eurozone's lender of last resort. China's interests are clear: a surviving euro fuels demand for Chinese goods and allows China to diversify its massive dollar holdings. All the better for Germany. China's "bond diplomacy" toward Greece is a godsend for Greek-debt-laden German banks that fear a Greek default.

As Europe's ringleader, Germany could express its gratitude by softening its stance towards China on trade, the environment, and human rights. For example, China wants the EU to designate it a "market economy" within the WTO, which would make trade disputes against China more difficult, a demand the EU has so far resisted. Germany is also vying for the EU to drop its long-held arms embargo with China, a move the U.S. has long opposed.

Ultimately, growing trade ties to China could pull Berlin away from the West. As Marcus Walker argues in the Wall Street Journal this week: "When you've carved out a lucrative niche selling precision machinery and luxury cars to fast-growing emerging economies such as China, who needs stodgy old Europe?" There are already small signs of Germany peeling away. Germany sided with China and Russia in abstaining from NATO's Libya intervention, and it has walked away from the ailing eurozone on numerous occasions.